Facebook Highlights: The beginning of paid social networking?

Facebook is testing a new pay-to-promote system for status updates: the idea is that users can pay a small fee to Facebook to have a particular status update appear on their social networks in a more-visible manner. Right now, the test service appears to be only running in New Zealand (although a few others claim to have seen it), and the company has not announced any plans to take the feature to other markets, or even if it’s going to stick with the idea.

What’s behind Facebook Highlight, and what could it mean for other Facebook services? How might other social networking services respond? Are we starting to enter an era where social networks carry so much noise that only those willing to pay have a chance to be heard?

Facebook Highlight

The idea behind Facebook Highlight is that people might be willing to pay a little bit of money to have a particular status updates be stickier on their friend’s new feeds. Normally, Facebook’s prioritization algorithm emphasizes posts from your closest Facebook friends, or items from other folks in your broader social graph that have generated a significant number of comments or likes. Facebook Highlight lets users pay Facebook to tweak that balance — highlighted posts stay on news feeds longer than they would otherwise merit from other factors, meaning they should be seen by more people.

Facebook is apparently testing different price points for Facebook Highlight, ranging from about US$0.40 to $2.00. A Facebook spokesperson indicated to the BBC that the company is testing different payment levels for different ways of making a post more visible — including ways to highlight a post for free. The initial report from New Zealand indicated highlighted updates could appear on a yellow background; other Facebook users seeing the feature are apparently seeing different highlight options and price points.

Right now, Facebook is only handling highlighted posts via PayPal or credit card; presumably, the company will accept Facebook Credits if it decides to make the feature available to everybody.

What Facebook is trying to do

According to an official statement from Facebook, Facebook Highlight is simply a test “to gauge people’s interest in this method of sharing with their friends.”

The business realities behind that statement might be a little more complicated. At last March’s Facebook Marketing Conference, the company revealed that, typically, items shared with friends via a their user profile typically only reach about 12 percent of their friends — many don’t check in often enough to see the news while it’s still fresh, or perhaps a post gets drowned by a popular item from someone else in their social circle. Businesses don’t fare much better: news items from a Business Page typically only reach about 16 percent of their followers, often for similar reasons.

Facebook has traditionally argued that downranking “unimportant” items in a news feed lets more-significant and potentially-urgent items surface to the top. In an abstract way, Facebook Highlight is essentially a way for a user to flag their own news item as “This is more important than normal, please let people see it.”

So why is Facebook considering charging for highlighted posts? First, as the company lurches towards its initial public offering, it’s keen to demonstrate to potential investors that it has lots of ways to generate more revenue from the service — and thus put money in investors’ pockets. Sure, the amount charged for a Facebook Highlight might be tiny, but Facebook has over 900 million users worldwide. If one in ten decides to highlight one post a year, that’s essentially $160 million in annual income Facebook wouldn’t have had otherwise. And, of course, social networking fiends who rely on Facebook to grow and maintain their “social brands” will probably pay to highlight far more than one post a year. Because, at least in their own minds, they’re worth it.

Second, Facebook news feeds are far more effective than standard advertising that appears on the site. Last December Facebook began offering paid coupon news feed items, and claims click-through rates for those items appearing in news feeds are five to ten times higher than standard ads. The message is clear: Facebook users pay more attention to their news feed than they do to standard advertising, and that makes the news feed a prime target for monetization. This is particularly true for Facebook’s mobile apps, which currently show far fewer advertisements than Facebook displays on the Web. And nearly every mobile Facebook user taps into their news feed from their tablet or smartphone.

Is charging a fee a big deal?

If Facebook were to roll out paid Highlights for news items, it wouldn’t hail the beginning of Armageddon, but it would mark a significant shift: For the first time, Facebook would be associating a fee with using its basic services. Facebook has always been happy to collect money from advertisers, and act as a middleman in transactions between its users and companies like Zynga. But collecting money directly from users for the use of Facebook services would be new — and, if it’s successful, likely would mark only the beginning of monetized Facebook services.

It’s telling that when Facebook Highlight first appears to test users, some assume it’s a scam.

However, monetizing Facebook via Facebook Highlights is a slippery slope. Facebook users gravitate towards their news feeds precisely because it’s where up-to-the-minute items from their social network appear, making it a hub for real-time interactions with online friends as well as any businesses or brands they’ve decides to follow. If Facebook Highlights make the news feed more relevant to Facebook users, they will likely embrace it. That said, Facebook Highlights could easily backfire if it pollutes what many see as one of Facebook’s most-valuable services. Facebook’s fundamental value proposition to its users is that they can connect and share things with people they know. If Facebook puts a monetary barrier between its users and effectively reaching their social networks, Facebook suddenly becomes far less valuable.

Don’t other services charge for featured placement?

But wait, you’re thinking, other social networks already charge for stuff like this! Not really. The closest analog is perhaps Tumblr’s Highlighted Posts, where users can pay $1 to make a single post stand out on users’ Dashboards with a customizable “sticker” and label. The feature rolled out in February, and is still in something of a beta phase. (Tumblr once charged $5 to be listed in its directory; that didn’t take.) However, it’s not an exact parallel with Facebook Highlights because, until recently, Tumblr has completely avoided advertising: instead, Tumblr has made money by charging users for premium features, like enhanced blog templates. With that kine of business model, offering highlighted posts as a premium feature isn’t something new.

What about Promoted Tweets? Twitter is another social networking platform that more-or-less eschews advertising, but advertisers can purchase Promoted Tweets that appear at the top of search results pages and (in some cases) even directly in users’ timelines. However, Promoted Tweets aren’t available to individual Twitter users as a way to make their tweets stand out from all the noise. Rather, they are available solely to advertisers — so they don’t represent Twitter tacking an add-on cost to an existing free service, or introducing a new premium service for users. The same things is true of Promoted Trends — advertisers can buy them, but they are out of reach for ordinary users.

What about Facebook itself? Facebook Offers lets advertisers create coupons that they can share to fans and followers via their news feeds: at first Facebook Offers was available only to a handful of select partner companies, but just this month Facebook opened it up to businesses in the United States. Some would argue that these coupon offers already pollute Facebook’s news feeds, but they only appear to folks who’ve signed up as fans of a particular business. And, unlike the way Facebook seems to be considering Facebook Highlights, companies do not pay to run Facebook Offers. They’re free to any U.S. business, but they’re not available to everyday Facebook users. Of course, businesses looking at Facebook Offers are probably already spending some money with Facebook to run advertisements and increase their fan bases — so news feed coupons represent a chance to get some return on that investment.

Disrupting features versus recouping costs

Remember: Facebook Highlight is just in testing. It’s not an official feature, and Facebook hasn’t rolled it out to more than a handful of test users.

Facebook could decide to offer Facebook Highlight for free — perhaps with the notion it enables users to identify especially-significant posts so they’re more likely to stick around a while in their friends’ news feeds. The idea of empowering users — rather than nickel-and-diming them — would likely go over well with Facebook’s core audience, so long as Facebook also introduced mechanisms to prevent abuse. If the feature were free, some social media fiends would highlight all their posts — because, obviously, it’s the most important thing in the world, right? Users could be limited to one highlighted post a day — or perhaps permitted to highlight no more than (say) 10 percent of their posts overall. In any case, Facebook would need to take care that highlighted items don’t reduce the value of news feeds.

However, if Facebook Highlights is about creating new revenue streams, Facebook could look at adding premium service levels to features that incur significant operational costs. One example could be charging for media storage. Facebook has long since been the world’s largest photo service, with estimates last year putting it 1,000 times larger than the Library of Congress. However, services like Flickr and even Google’s Picasa charging for the same essentially-unlimited storage that Facebook offers, and Apple’s iCloud offers only a paltry 5 GB for free: after that, users are paying up to $100/year for an additional 50 GB in storage. Facebook — especially now that it’s in the process of acquiring Instagram — could easily introduce premium tiers for photo and video storage. Unless users pay up, maybe the oldest photos and video simply roll off the Timeline and into cold storage once a user reaches a particular storage threshold. This sort of premium feature makes more sense than charging for highlighted news postings because it’s directly tied to Facebook’s operational costs: everyone understands Facebook is spending real money, effort, and talent operating its huge photo library, but Facebook isn’t incurring additional costs by making some news items a bit stickier.

If Facebook does decide to start charging users for premium services, it must take care those services don’t disrupt Facebook’s successful features. Furthermore, fees need to be presented as a reasonable charge for new capabilities, rather than a deliberate attempt for extort money from users. If there’s one thing that’s always true on the Internet, it’s that what’s available for free always trumps what’s available only for a price.